Construction Outlook for the Top Five Hotel Markets

Posted on October 5, 2016

Hotels are popping up in cities all over the US. Some cities have a stronger market and stronger demand while other cities prove more difficult to build. Let’s take a look at the top five cities where the demand is strong and new construction is stacking up.

San Francisco

Over the past 12 months, over a dozen new hotel projects have been proposed. Add that to what is already one of the strongest markets in the country, and it just keeps on growing. Market forces are hard at work getting these hotel proposals – flourishing tourism, strong business travel, healthy convention business and development that have added a handful of major hotels in the last 15 years. 2015 was a standout year for the city, with a record number of visitors. The average price of a hotel room jumped by 88 percent from 2014 and the market here is just going to get stronger.

New York City

New York’s hotel construction peaked in 2014 and by now those newly built hotels are opening their doors. Developers are looking for other areas in the city to keep the momentum going strong. In 2015, 4,630 hotel rooms were planned by developers. As of April 2016, permits had been submitted for only six new hotel projects. That is a total of 512 units. With roughly 58.3 million visitors annually, New York City will always have a high demand for hotels and the forecast for 2016 is that the hotel room inventory will grow by 12.0 percent.

Los Angeles

Los Angeles has the fourth highest occupancy rate in the country for hotel rooms. According to CoStar, the inventory in LA is expected to grow by 4.0 percent in 2016. Downtown LA is in the top five of the top 30 US hospitality markets. With its high supply of customers, the average room rate is more than peak rates in other surrounding markets. Downtown LA receives more than 10 million visitors each year and the entire city of Los Angeles received 45.5 million in 2015. It’s no wonder that this city is in high demand for hotel rooms. So far this year, 82.8 percent of its hotel rooms have been occupied. Can’t wait to see what 2017 brings!

Chicago

Chicago’s hotel inventory is set to increase by more than 8,360 new rooms over the next several years. That’s about a 5.0 percent growth in 2016 and 2017. Most of these new rooms are expected to be in the Chicago Business District. Word is that hoteliers are actually converting older business buildings into new hotel properties. This is being focused in neighborhoods like the downtown loop.

Atlanta

Atlanta’s hotel market is growing and expected to continue at this pace through 2019. Last year they grew at 6.6 percent and they also had the highest-priced transaction for the year. The Hilton Atlanta sold for $174.5 million ($140,499 per room). Occupancy was at an all time high in 2015 at 70 percent and is expected to keep that momentum with new properties expected to enter the market in the coming years. This is a huge change for a city that just a year and a half ago was converting older hotel rooms to have other uses, such as student housing. We are seeing big changes in the forecast for Atlanta.